Sempra Energy raises 2007 earnings outlook

SAN FRANCISCO (MarketWatch) -- Undeterred by a weak end to the year, Sempra Energy pointed Thursday to 53% profit growth in 2006 and raised its 2007 earnings estimate.

"I think people will look through the fourth quarter. It does not set the stage for 2007," Sempra Chairman and Chief Executive Officer Donald Felsinger told MarketWatch.

Earlier Thursday the company reported a 65% drop in its fourth-quarter earnings, clipped by lower commodity prices and a $221 million charge to cover divestment of its stake in two Argentine natural gas utilities, which Felsinger said will be put up for sale.

For the fourth quarter, the San Diego-based energy provider posted net income of $125 million, or 47 cents a share, down from $355 million, or $1.38 a share, a year ago. Revenue fell 17% to $3.25 billion from $3.93 billion.

Analysts surveyed by Thomson Financial had been looking for earnings of $1.40 a share on revenue of $3.94 billion. Analyst surveys typically exclude one-time items.

For the full year, however, Sempra's net income totaled $1.4 billion, or $5.38 a share, up from $920 million, or $3.65 a share, in 2005 and far surpassing the $3.92 per-share earnings analysts had expected. Full-year revenue rose 2% to $11.76 billion.

Citing the year-on-year gains and continued strength in its commodities trading unit, Sempra raised its 2007 earnings outlook to $3.75 to $3.95 a share. The company's previous 2007 earnings forecast, made in November, was $3.50 to $3.70 a share.

"We ended up raising our guidance two times last year. Whether we end up doing it again depends on volatility in the marketplace ... our commodities business is the one that really could swing this," Felsinger said.

Over the past several years, Sempra has built up a commodities trading book now worth about $2.5 billion. Most of the positions it takes are in the energy market -- especially natural gas -- with the remainder placed primarily in the base metals market.

Investors sent Sempra
SRE, +0.16%
shares to a high of $60.90 in early action, though the stock gave back most of its gains by late in the day to close 9 cents higher at $60.45.

Sempra's commodities trading unit saw its fourth-quarter net slip to $214 million from $244 million, a decline it blamed mainly on reduced petroleum and power marketing margins. For the full year, the unit produced a net profit of $504 million, up nearly 10% from $460 million in 2005.

Sempra's San Diego Gas & Electric, California's third-biggest investor-owned electric utility, posted fourth-quarter net income of $55 million, compared with $72 million a year ago. Its natural gas unit, Southern California Gas Co., had net income in the quarter of $55 million, up from $48 million a year ago.

Sempra Generation, the company's unregulated wholesale power business, reported fourth-quarter net income fell to $53 million from $58 million a year ago, while its pipelines and storage business saw a loss of $223 million, versus a $16 million profit in the last three months of 2005.

Sempra narrowed fourth-quarter losses for its liquefied natural gas (LNG) unit to $7 million from a loss of $10 million a year earlier.

Felsinger said the LNG terminal it is completing just across the border in northwest Mexico is still on track for start-up in 2008. Capacity at the facility is fully booked and Sempra has applied to local authorities to eventually expand the unit.

Capacity at the LNG terminal Sempra is building in Cameron, La., is still less than 60% contracted. Nevertheless, Felsinger said they have secured enough gas for the facility to realize a return on their investment.

Asked about Sempra's Latin American operations, Felsinger said its decision to quit Argentina stemmed from the country's decision several years ago to link its currency to the U.S. dollar, a policy shift that undermined the value of Sempra's investments there. Sempra's majority stake in the two companies was shared evenly with Newark, N.J.-based Public Service Enterprise Group
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Sempra, through an arm of the World Bank, is seeking damages from Argentina. Felsinger said other foreign companies caught in the same monetary policy shift have been awarded damages, setting a precedent Sempra hopes will benefit its own case.

Felsinger called Sempra's Argentine investments non-strategic, adding that the company plans to eventually exit other non-strategic investments in Chilean and Peruvian utilities, though no date has been set for such a move.

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